Lynk Insights: Next Round of Big Changes Coming in China for Beer Drinkers in 2018

Consistently one of the most popular drinks in China, the beer industry has reached a crossroads at the start of 2018, with big changes coming. A shift in consumer standards and tastes may end up reshaping the industry, for the foreseeable future.   

According to Lynk Knowledge Partner Jiang Gu, these potential changes may have an impact, unlike anything we have previously seen. For example, while big corporates such as Deutsche Bank forecast beer consumption in China to expand by almost 2% in volume, (between 2016 and 2020), this may be quite a conservative estimation.

“For imported beer this is almost certainly true. This number may even be considerably higher by the time 2020 comes around, the industry is really in a good place right now.”

Along with an increase in beer consumption, you can expect significant changes in the total standard of beer nationwide, as individuals move away from the cheaper beer traditionally served in bars. Henceforth expect more premium quality products taking over in the next 12 months.

According to Jiang these changes in consumer trends can be put down to several things.

‘The swell of a wealthy middle-class has led to cheaper products falling in popularity, with only students still buying it at the same rate as before. Now thanks to foreign breweries such as AB Inbev bringing more premium brands to the masses at competitive prices, domestic brands will have to step up their branding, and overall quality. If not they will risk being demoted to to the countryside markets, and potentially leaving the cities all together.”

This preferential change has begun to hit the big players where it hurts. Snow, Tsingtao, and Yanjing have all seen a reduction in sales, with urban sales falling 3, 8 and 7 percent respectively, last year. These numbers are expected to follow this trajectory as the demand for premium products, and foreign imports continue to grow.

In the eyes of Jiang there is massive untapped potential in these premium imported beers.

“In 2018 there is going to be a huge jump in sales for these premium products. Currently 4 – 5% of beers are imported. This should increase by 15% during 2018 due to the demand for premium quality.”

As it turns out these Chinese beer drinkers are waking up to the fact that there are alternatives to the usual bottled beer brands. Craft beer (both imported and locally brewed) appears to be on an upward trajectory leading into 2018, an opinion echoed by Jiang.

“While at the moment craft beer is still not widely accepted, expect this to change in 2018. At the moment it is popular among millennials as a niche drink. However once it reaches a certain level of popularity, expect it to burst into pop culture and consumption across China to spike.”

For 2018 it looks like businesses are finally catching on with foreign breweries, buying up local craft brew houses or importing popular foreign brands, like Goose IPA.

Although this may be to the delight of Chinese craft beer fans, it may lead to certain companies dangerously monopolizing the industry. Unlike the US where the craft beer industry has been booming for some time, in China, there is little to no regulation, or laws surrounding how companies can manipulate bars to serve their booze. This has led to bars being paid large sums of money to only stock certain brands. Not only this, but these brands are competitively priced, and their consumption is externally monitored, often without the bar owners consent.

Jiang agrees, saying that

“To stay afloat and thrive the smaller breweries will have to constantly be on point with their sales, and branding in order to stand out of the crowd, and appeal to the growing crowd of consumers.”

With the market valued at more than US$70 billion, the China beer market represents an extremely unique opportunity for both small local breweries, as well as big names investing in foreign imports. For 2018 it looks like businesses are finally catching on to the premium, and craft trends, tapping into the market accordingly.

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